Acushnet Holdings Corp. — Q1 2022 Form 10-Q
Business context and reporting period. This unaudited report covers the three months ended March 31, 2022, compared with the three months ended March 31, 2021. Acushnet designs, manufactures and distributes golf products under the Titleist and FootJoy brands.
Financial performance and position
- Sales: $606.1 million, up 4.3% reported and 7.6% in constant currency. Growth was led by FootJoy golf wear and Titleist golf clubs.
- Profitability: Gross profit was $317.0 million, up 2.0%, while gross margin declined to 52.3% from 53.5%. Operating income fell to $105.4 million from $120.1 million. Net income attributable to Acushnet was $81.0 million, versus $85.0 million; diluted EPS was $1.10 versus $1.13.
- Adjusted EBITDA: $120.0 million versus $135.3 million; margin was 19.8% versus 23.3%. These are non-GAAP measures defined by the company.
- Cash flow: Operating cash use was $164.0 million versus $30.0 million, primarily reflecting working-capital changes. Investing cash use was $11.7 million; financing provided $9.5 million. Cash, cash equivalents and restricted cash ended at $114.4 million.
- Debt and liquidity: Total debt was approximately $408.1 million, including $97.3 million of short-term debt and $310.8 million of current and long-term debt. Unrestricted cash was $112.6 million. Available borrowing capacity was $306.7 million under the revolver and $38.2 million under local facilities. The company reported compliance with its credit covenants.
- Capital returns: The company repurchased 1.16 million shares for $59.1 million and paid $14.0 million in dividends during the quarter. The quarterly dividend declared for Q2 was $0.18 per share.
Material changes versus prior year
- FootJoy golf wear sales rose 24.0% reported (28.2% constant currency), helped by EMEA demand and comparison with prior-year government shutdowns. Titleist golf clubs sales increased 3.2% reported (6.1% constant currency), supported by new wedges and irons.
- Titleist golf balls sales decreased 5.6% reported, and golf gear sales decreased 16.9%, with raw-material availability, supply-chain and fulfillment constraints cited as factors.
- Higher raw-material, component and inbound freight costs weighed on gross margin. SG&A increased $19.3 million, including higher selling, administrative and promotional expenses.
- Interest expense declined to $1.3 million from $3.6 million, primarily due to lower swap losses, lower interest rates and reduced debt-issuance-cost amortization. The effective tax rate fell to 20.4% from 24.3%.
Outlook, risks and contingencies
- Management expects approximately $60 million of capital expenditures for full-year 2022, subject to timing and supply-chain factors. No specific revenue or earnings guidance is provided in the filing.
- Management said inflation, especially raw-material and shipping costs, was expected to remain an issue for the rest of 2022. COVID-19 effects and their duration remain uncertain. The company expects operating cash flow, cash on hand and available facilities to meet liquidity needs for at least the next 12 months, subject to business risks.
- Key exposures include supply-chain disruption and constrained materials, inflation, variable interest rates, foreign exchange, commodity availability, seasonality, demand and weather. A hypothetical one-percentage-point increase in rates would raise annual pretax interest expense by $4.1 million, based on quarter-end variable-rate debt.
- The company is party to ordinary-course litigation; it cannot estimate aggregate potential losses and has recorded no liability for potential losses. Purchase obligations totaled $374.5 million across the disclosed payment periods.
- After quarter-end, on April 28, the board authorized an additional $150 million of repurchases, raising total authorization to $350 million. Management reported effective disclosure controls and no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether supply and fulfillment constraints ease, particularly for golf balls, clubs and gear, and how this affects sales volumes.
- Whether cost inflation and freight pressures persist and their effect on gross margin and segment profitability.
- Working-capital cash use, inventory and receivables trends, and the company’s ability to preserve liquidity amid seasonal needs and repurchases.
- Debt balances, borrowing capacity and covenant compliance as interest rates and financing needs change.
- Execution and remaining capacity under the expanded share-repurchase authorization, alongside dividend payments and planned capital expenditures.